Update on Eminent Domain

The right of Americans to own property is no longer assured, thanks to a recent ruling by the U.S. Supreme Court. In the name of economic development, the government can seize land from a private owner and give it to someone else who will personally profit. On June 23, the Supreme Court ruled that a Connecticut city could use eminent domain to seize homes and turn them over to a private developer.

Eminent domain is the government's power to confiscate private property against the wishes of the owner, who is paid according to a government assessment of the land’s value. "This power is exercised not only by elected officials, but by those who have no incentive to listen to the voice of the voters, such as redevelopment agencies, utility companies and even private developers," says Robert Thomas, the managing attorney for the Pacific Legal Foundation's Hawaii Center in Honolulu. "The ability to protect your property from forced sale to the highest bidder under government cover is an issue that everyone—regardless of means or political persuasion—can and should get behind."

In Kelo v. City of New London, Connecticut officials used eminent domain to seize several homes in a working-class neighborhood for the development of a fashionable hotel, health club and marina to support the pharmaceutical company, Pfizer. The state purchased a portion of the residences from willing participants, but several owners refused to sell. That’s when the state exercised its power. The homeowners brought a state-court action claiming inter alia, that the taking of their properties would violate the "public use" restriction.

But the Connecticut Supreme Court, then the U.S. Supreme Court, upheld the city’s right of seizure. In her stinging dissent of the court's ruling, Justice Sandra Day O'Connor said, "The specter of condemnation hangs over all property. Nothing is to prevent the state from replacing any Motel 6 with a Ritz- Carlton, any home with a shopping mall, or any farm with a factory."

Storage Owners Stay Alert

"The decision of the U.S. Supreme Court should be of great concern to self-storage operators, owners and investors," says Jeffrey Greenberger of the law firm Katz, Greenberger & Norton LLP in Cincinnati. "We have now seen several cases, including the Supreme Court case, of a government entity taking private land for what the local regime deems to be an improvement or upgrade, but not just for blight removal or public improvement."

Unfortunately, these days, the issue of “improvement” is not about whether the existing property is dilapidated and should be razed, but if the property can represent better tax revenue for the city, township or county, Greenberger says. For example, a self-storage facility might be in excellent condition and be a good neighbor but generate very little sales tax and, with only a few employees, little wage tax. A city can replace that facility with a shiny new shopping center or office building that creates more jobs and generates more tax. The Supreme Court decision confirms this as acceptable grounds for using eminent domain.

Storage operators must therefore remain vigilant in their involvement with local government, Greenberger says. It’s more important than ever to keep close ties with officials and consistently monitor city economic and zoning plans to make sure one's facility is not in a target zone.

Still Some Safety

At least it’s not easy for a city to take property by eminent domain, Greenberger says. These matters, if contested, are often litigated for many years at great expense to the self-storage operator and the entity trying to take the property. The Supreme Court decision does not give the government carte blanche to take anything it wants, whenever it wants.

"The taking cannot be a vendetta," says Greenberger. The court in the Connecticut case found the city had a "carefully formulated" economic-development plan leading to appreciable benefits to the community. There is still a system of checks and balances in place. "Unfortunately, the balances, given the Supreme Court's recent decision, are not as absolute to a landowner as they used to be."

"The words of Justice O'Connor are all too true, and every citizen should be alarmed about the wrong turn the Supreme Court has suddenly taken," says Chris McGrath, president of the New York Self Storage Association. Landowners will find little comfort in turning to state legislators for relief either, he adds. "Many states already have legislative provisions in place that recognize the development or redevelopment of economically “blighted” areas as a “public purpose and public use.”

McGrath advises self-storage associations to join others in the real estate industry who are petitioning state lawmakers for stricter definitions of these so-called public purposes and uses. "If we don't take this path and exercise our political will, we’ll only have ourselves to blame when the government comes knocking on self-storage doors to condemn these properties for the economic benefit of others," he says.

McGrath already sees this happening in New York City, where Columbia University is effecting the condemnation of several self-storage properties—including some of the city ’s first facilities—for the benefit of a private educational institution. "The Kelo case only gives aid and encouragement to real estate developers throughout the country to “covet” their neighbor's lands," he warns.

"As with every Supreme Court decision, this one is still open to interpretation, which can stretch it in either direction," Greenberger says. "If a self-storage operator even begins to sense that a city or township is looking at his property as a new development, it is vital he get the best possible legal counsel involved immediately."